How to analyze the crowd behavior with Current Ratio tool
The main crowd indicator is open positions ratio.
Open positions ratio is a percentage value showing the current difference between the number of traders, which have opened Long and Short positions. At that, already closed trades don’t affect the indicator’s value.
This indicator shows the sentiment of individual traders for a certain currency pair. According to the fact that “the crowd is usually wrong” we should open our trades in the direction opposite to the crowd’s direction.
Basic Ratio strategy
Here are the rules of basic trading strategy based on Buy and Sell ratio:
Basically, we should open a long position on a currency, when more than 60% of traders sell the currency. As you probably guessed, we should open a short position on a currency, when more than 60% of traders buy the currency.
When the ratio is close to the value of 50%, we should not trade..
Current Ratio tool
Current ratio tool provides data for the current Bull/Bear ratio.
We can analyze the ratio from different brokers to diversify risks. We should look for the majority of brokers showing unidirectional signals.
We can see a good signal to open a long trade on the picture above.
There is also an easy-to-use average ratio to make decisions, but its signal ratio will be within the approximate range of 47-53% because of a diversification.
Efficiency of Ratio signal
We can tell you from our own experience that not all brokers provide equally efficient signals. We carried out a study and obtained the following results:
The table above shows efficiency of the ratio signals from different brokers and currency pairs. Employ this information to give a preference, when not all of the brokers give unidirectional signals..
Please consider that using pure ratio signal to enter the market gives not more than 53-57% profitable trades (in case if stop loss is equal to take profit).